XPMode(XPM) for Windows7 came as quite a surprise as this feature wasn't available in the Beta stages of the Windows 7 releases. This secret feature wasn't officially announced until earlier this week when Windows 7 RC became available for MSDN subscribers (read in more details here: http://www.microsoft.com/presspass/features/2009/Apr09/04-28Win7QA.mspx)
So what is XP Mode in Windows 7? The following Microsoft Video summarise quite nicely this new feature in Win7:
XP Mode will encourage a lot of current Windows XP users to upgrade their OS to Windows 7 since you actually get a free fully licensed copy of Windows XP with Service Pack 3(SP3) via the XP Mode feature.
The only thing I am wary about is the strict requirement on having a PC with Intel-VT or AMD-V enabled in the CPU (hardware virtualization) since a lot of older PCs do not have this feature. A good check for AMD PCs to see if your CPU supports Hyper-V, I have posted previously on how to check this, see: http://geekswithblogs.net/kit/archive/2008/09/12/125123.aspx (SharePoint and Hyper-V)
For Intel PCs, you can download the Processor Identification Utility here: http://www.intel.com/support/processors/tools/piu/
XP Mode reminds me a bit of the Unity feature in VMware, this feature allows the user to run applications from a different OS via Virtualization, in the following YouTube video, Windows XP Applications are running seamlessly on a Mac OS X
Download the free XP Mode add-on for Windows 7 here (although at the time of writing, XPM is still in Beta stage): http://www.microsoft.com/windows/virtual-pc